A firm produces 4,000 units of output using 500 workers.Marginal cost is $10,the wage rate is $160,and total fixed cost is $100,000.When output is 4,000 units,
A)average variable cost is decreasing.
B)average variable cost is increasing.
C)average total cost is decreasing.
D)average total cost is increasing.
E)both a and c

Question

Quizplus · Accepted Answer

Average variable cost (AVC) is decreasing because the addition of more units of output is spreading the variable costs over a larger number of units, reducing the cost per unit. Average total cost (ATC) is also decreasing because the total cost (fixed plus variable) spread over more units of output results in a lower cost per unit.

A Firm Produces 4,000 Units of Output Using 500 Workers